On Tuesday, the New York Regional Interconnect (“NYRI”) suspended its plan to build a 190 mile, high-voltage transmission line in New York after it claimed an order by the Commission on March 31, 2009 created too many financial risks for its investors. The project, estimated to cost $2 billion, would have built a 1,200 megawatt direct current transmission line to move renewable energy from upstate New York to the New York City suburbs.

NYRI, a partnership between American Consumer Industries Inc. and Borealis Infrastructure Management, first announced its plans to build the new transmission line in March 2006. The line would have helped ease transmission congestion in New York while also bringing both wind and hydroelectric energy from upstate New York to the New York City suburbs. Before NYRI would commit to building the project, it first needed to receive cost recovery approval. In order to do so under the New York Independent System Operator’s (“NYISO”) new rules, adopted by the Commission in October 2008, 80 percent of a project’s would-be-customers would have to approve the project in order allow cost recovery through the NYISO tariff.

NYRI had filed a request for rehearing asking the Commission to change NYISO’s “supermajority” rule because it would allow Consolidated Edison Company of New York (“ConEd”), Inc., a competitor of NYRI that currently serves more than 20 percent of NYRI’s customers, the ability to block the project. NYRI argued that the supermajority rule was not just counter to FERC policy, but was also anti-competitive and illegal under anti-trust laws, and thus, would discourage private investment for similar projects. Meanwhile, ConEd believed that NYRI’s project was misleading because it only highlighted its associated benefits and did not include key costs that would affect customers. Other entities, including some environmentalists, municipalities, and politicians have also opposed the transmission project.

The Commission denied NYRI’s petition for rehearing last week. The Commission concluded that the supermajority rule was reasonable and provided a useful check on projects seeking cost recovery. The Commission added that Order No. 890 had already stated that rules requiring a certain percentage of customer approval for economic upgrades were permissible. Additionally, just because one participant may be able to decide the outcome of cost recovery does not necessarily mean the process is unjust and unreasonable. NYISO added in a public statement that the supermajority rule applies to all transmission projects and not just NYRI’s proposed project.

Some believe that NYRI may now try to use the Commission’s “backstop authority” to approve the project under section 1221 of the Energy Policy Act of 2005 even though NYRI has now withdrawn its project before the New York Public Utility Commission has released its final decision on the project. Rep. Henry Waxman (D-CA), Chairman of the House Committee on Energy and Commerce, sent a letter to Commission Chairman Jon Wellinghoff on Tuesday expressing his concerns that the Commission even considered NYRI’s proposed project. Congressman Waxman stated that approving the project utilizing section 1221 would go beyond the Commission’s current authority and would be counterproductive.

A copy of the Commission’s order on rehearing can be found on the Commission’s website under Docket No. OA08-52-003. Rep. Waxman’s letter to Chairman Wellinghoff is available at: http://energycommerce.house.gov/Press_111/20090408/wellinghoff.pdf.